Leadership needed to resolve trade issues with Europe

Saturday 14 July 2012

A copy paper manufacturer in a Caribbean country is facing closure of his business and his 300 employees are likely to lose their jobs because he woke up a few days ago to the reality that tariffs had been removed from a similar product imported from the European Union (EU).

The removal of the tariffs on copy paper from the EU was one of the commitments made by the government of the Caribbean country under the Economic Partnership Agreement (EPA) signed in 2008 by the 27-EU nations collectively and Caribbean countries individually.

What is alarming about this development is that the local copy paper manufacturer was unaware of the commitment of his government that will materially affect his business and probably put 300 persons out of work. According to the manufacturer, when he contacted the relevant government ministry, he was informed that the removal of the tariff on EU copy paper was a “mistake”.

This particular Caribbean country is one of only six that have actually implemented tariff cuts on EU goods to which they committed under the EPA. Eight other countries, including Antigua and Barbuda, Jamaica and Suriname, have not done so.

These eight countries face the daunting prospect of each going through a consultation process to resolve the issue. If they fail to do so, the EU will institute costly arbitration proceedings against each of them individually. The solution to the problem is for each of the countries to implement the removal of the tariffs swiftly on the EU goods to which they gave legally binding commitments.

The problem that confronts the eight governments is that when they implement this legally binding commitment, to which they readily signed-up despite warnings at the time that the EPA with the EU was both unequal and unfair, they will lose revenues. Further, local businesses that produce similar products will face strong competition from EU imported goods.

If the local businesses cannot compete, they will collapse putting their employees out of work. It is this latter problem that the local copy manufacturer (about whom reference was made earlier) now faces because whether the commitment to remove tariffs on imported EU copy paper was a “mistake” by the government or not, it is legally binding and the European Commission is most unlikely to agree to change it. If they did, their action would open the possibility for other countries to claim “mistakes” for other products. The agreement would unravel.

This situation points to a lack of preparedness by Caribbean governments for the consequences of the EPA signed almost four years ago. In the case of the eight countries that have not implemented the tariff cuts, two effects are now evident. First, since they have not made provision for replacing the revenues that will be lost from the tariff cuts, and if they have to implement the cuts hurriedly to avoid arbitration, the only immediate way of replacing the lost revenue is more taxes on the local population. Second, once the tariff cuts are implemented, local producers of products similar to the EU goods will find themselves immediately at a disadvantage with no time in which to restructure their businesses to compete and survive.

Implementing the tariff cuts will not be easy. It will require the production of new tariff schedules for customs and tax offices that will have to be authorised by parliamentary-approved legislation. In any event, in this urgent situation, there will not be sufficient time for local manufacturers to gear themselves for competition.

The problems for these eight countries, resulting from their failure to implement the tariff cuts and to prepare their private sectors for the consequent competition, are now very real.

The difficulties are no less real for the six Caribbean countries that have implemented the tariff cuts. Unless they have used the last four years to prepare their local producers of goods similar to the EU products for competition, those businesses will flounder and their workers will be put on the breadline. In essence, the Caribbean public will be maintaining and increasing jobs for EU manufacturers while local businesses and local workers struggle.

It should also be recalled that Caribbean countries agreed to implement tariff cuts on a wide range of EU goods over a phased period. Therefore, the present tariff reductions are only a first wave. There are others to come.

If the private sector in each Caribbean country is not aware of the commitments that their government has made under the EPA for tariff cuts, they would be negligent in not making themselves fully aware of these commitments now. If they fail to do so, like the case cited at the start of this commentary, they too will wake up one morning to the reality that they no longer enjoy a competitive advantage over imported EU goods. Governments that have made commitments under the EPA have no choice but to implement them now even if they later insist on a review of the EPA that can be done from October 2013.

The carrot that encouraged Caribbean governments to sign the EPA was the commitment by the EU that Caribbean countries would have tariff free access to the EU market for goods and services. In reality, over the last four years very few companies or individuals have been able to access markets of the 27 nations of the EU.

It is significant that if the Caribbean copy paper manufacturer cannot compete with tariff-free EU products in his own market, he has no chance of exporting his goods into the EU countries on a competitive basis. His operation is just too small, and Caribbean businesses are constrained from the delays in establishing a Caribbean Single Market and Economy from merging similar businesses into one or two entities that could compete with tariff-free EU products.

There is an urgent need for leadership to bring governments and the private sector together for joint action on these matters, or the Caribbean will be poorer for the failure to act.